Fair Value Measurements

9 Months Ended

Sep. 30, 2016

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

Note 3 - Fair Value Measurements

The carrying amounts of our short-term financial instruments, which primarily include cash and cash equivalents, accounts receivable (billed and unbilled), and accounts payable, approximate their fair values due to their short-term maturities. We define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. We report assets and liabilities that are measured at fair value using a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

⋅ Level 1 — Quoted prices in active markets for identical assets or liabilities.

⋅ Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

⋅ Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. At each reporting period, we perform a detailed analysis of our assets and liabilities that are measured at fair value. All assets and liabilities for which the fair value measurement is based on significant unobservable inputs or instruments which trade infrequently and therefore have little or no price transparency are classified as Level 3.

We have segregated our financial assets and liabilities that are measured at fair value into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the table below. We have no non-financial assets and liabilities that are measured at fair value on a recurring basis.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis:

	As of September 30, 2016
	Level 1		Level 2		Level 3		Balance
Financial Assets
Cash equivalents	$	13,899,719	$	54,964,977	$	-	$	68,864,696
Short-term investments		-		66,841,690		-		66,841,690
Total financial assets measured at fair value	$	13,899,719	$	121,806,667	$	-	$	135,706,386
Financial Liabilities
Current portion of derivative instruments related to stock purchase warrants	$	-	$	-	$	1,150,845	$	1,150,845
Total financial liabilities measured at fair value	$	-	$	-	$	1,150,845	$	1,150,845

	As of December 31, 2015
	Level 1		Level 2		Level 3		Balance
Financial Assets
Cash equivalents	$	6,430,561	$	-	$	-	$	6,430,561
Total financial assets measured at fair value	$	6,430,561	$	-	$	-	$	6,430,561
Financial Liabilities
Current portion of derivative instruments related to stock purchase warrants	$	-	$	-	$	16,411	$	16,411
Non-current portion of derivative instruments related to stock purchase warrants		-		-		491,791		491,791
Total financial liabilities measured at fair value	$	-	$	-	$	508,202	$	508,202

The Company’s cash equivalents are comprised of U.S. Treasury money market funds and government-sponsored enterprise debt securities with original maturities of three months or less when purchased. The Company’s short-term investments are comprised of U.S. Treasury securities and government-sponsored enterprise securities all of which are due within six months. These investments have been initially valued at the transaction price and subsequently valued at the end of each reporting period, utilizing other market observable data.

The following table sets forth a summary of changes in the fair value of the Company’s Level 3 liabilities for the nine months ended September 30, 2016 and 2015:

	Balance as of		Unrealized		Balance as of
	December 31,		Losses (Gains)		September 30,
Description	2015		2016		2016
Derivative liabilities related to stock purchase warrants	$	508,202	$	642,643	$	1,150,845

	Balance as of		Unrealized		Balance as of
	December 31,		Losses (Gains)		September 30,
Description	2014		2015		2015
Derivative liabilities related to stock purchase warrants	$	807,679	$	(577,426)	$	230,253

At September 30, 2016 and 2015, derivative liabilities are comprised of warrants to purchase 903,996 and 1,775,419 shares of common stock, respectively. Warrants to purchase 371,423 shares of common stock expired during the nine months ended September 30, 2016, none of which were exercised. Warrants to purchase 500,000 shares of common stock expired during the fourth quarter of 2015, none of which were exercised. The warrants are considered to be derivative liabilities due to the presence of net settlement features and/or non-standard anti-dilution provisions, and as a result, are recorded at fair value at each balance sheet date. The fair value of our warrants is determined based on the Black-Scholes option pricing model. Use of the Black-Scholes option pricing model requires the use of unobservable inputs such as the expected term, anticipated volatility and expected dividends. Changes in any of the assumptions related to the unobservable inputs identified above may change the stock purchase warrants’ fair value; increases in expected term, anticipated volatility and expected dividends generally result in increases in fair value, while decreases in the unobservable inputs generally result in decreases in fair value. Unrealized gains and losses on the fair value adjustments for these derivative instruments are classified in other income (expense) as the change in fair value of derivative instruments in our unaudited condensed consolidated statements of operations.

 

Quantitative Information about Level 3 Fair Value Measurements
Fair Value at September 30, 2016		Valuation  Technique	Unobservable Inputs
$	1,150,845	Black-Scholes option pricing model	Expected term
			Expected dividends
			Anticipated volatility

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

The Company measures its long-lived assets, including, property and equipment and goodwill, at fair value on a non-recurring basis. These assets are recognized at fair value when they are deemed to be other-than-temporarily impaired. (See Note 2- Summary of Significant Accounting Policies). As of September 30, 2016, the Company had no other assets or liabilities that were measured at fair value on a non-recurring basis.